Office vacancy 'may double in 2012'

Straits Times: Sat, Mar 31

OFFICE vacancy rates could be twice the level this year than in 2010 but there is no cause for alarm as leasing demand is still healthy, according to a property consultancy firm. Vacancies for Grade A offices have hit 9.4 per cent in the three months to end-March, up from about 6 per cent in the previous quarter, according to Cushman & Wakefield. The vacancy rate for Grade A office space in Singapore was 4.7 per cent in 2010. They are the highest in the Marina Bay area at 15 per cent, and the lowest around the City Hall and Marina Centre area at 3.7 per cent. Vacancy rates are rising because of the large supply of new office space entering the market from recently completed developments like the Marina Bay Financial Centre. This is unlike the situation during the market glut in 2009 when the global financial crisis curtailed office demand and sent rents into freefall. Cushman & Wakefield told a briefing yesterday that more than seven million sq ft of office space has been completed since 2009, including Mapletree Anson and Tokio Marine Centre in the Central Business District and suburban Tampines Grande. The firm predicts rental declines of about 10 to 15 per cent this year for Grade A space. Rents have already dipped 5 per cent in the first quarter. The Marina Bay area recorded the steepest drop with rents dipping to $11.20 per sq ft (psf) a month this quarter from $12.50 psf a month for the whole of last year. Throw in the phenomenon of shadow office space - where, essentially, tenants with excess space look for sub-tenants to ease the rental burden - and the supply balloons further. Cushman & Wakefield expects the volume of shadow space to rise to one million sq ft by the end of this year from about 540,000 sq ft now. For instance, Standard Chartered is trying to dispose of space at Marina Bay Financial Centre while Citibank is doing the same at Capital Square. Together, the banks are offering 250,000 sq ft of shadow office space. Overall vacancies are expected to gradually rise to about 14 per cent in 2014 - similar to that during the Sars crisis in 2003 - as buildings like Asia Square Tower 2 and CapitaGreen on the former Market Street carpark are completed. But despite these seemingly alarming figures, Cushman & Wakefield's country manager for Singapore, Mr Toby Dodd, maintained that there is no oversupply but 'ample supply'. 'We see positive growth; businesses here are growing... Rents coming off a little bit is not a bad thing because it helps Singapore maintain its competitive edge,' he noted. 'Depending on which building you pick, rents could be up to a third the price of Hong Kong, which is a good thing.' A vacancy rate of about 10 per cent for Grade A office space is healthy as it allows businesses a good range of choices, said Cushman & Wakefield's managing director of Asia Pacific research, Ms Sigrid Zialcita. She said it would be time to worry if this figure rises to 20 per cent. Medium-sized deals of between 10,000 to 30,000 sq ft are expected to power the market this year as larger leases for 100,000 sq ft or more by financial institutions have already been inked in the past few years, Mr Dodd noted. Suburban office space is also in high demand as businesses look for more affordable locations as they expand. Office rents are expected to hold up better this year in such locations. [e-mail] Source: The Straits Times